The US Supreme Court held Wednesday in Dawson v. Steager that West Virginia tax policy that taxes the pension of a retired federal marshal but not of state and local law enforcement violates 4 USC § 111.

After James Dawson retired from the US Marshals Service, his home state, West Virginia, taxed his federal pension benefits. Though there are no “significant differences” between Dawson’s former job responsibilities and those of the state law enforcement retirees, West Virginia exempts the pension benefits of certain former state and local law enforcement employees from state taxation.

Under § 111, the US consents to state taxation of the pay or compensation of federal employees, but only if the state tax does not discriminate on the basis of the source of the pay or compensation. Thus, a state violates the statute when it treats retired state employees more favorably than retired federal employees without “significant differences between the two classes” to justify the differential treatment.

The state argued that narrow preference to state employees are intended to help certain state retirees. The state also said that the real distinction should be based on the relative generosity of pension benefits. However, the Supreme Court found that “the State interest in adopting this discriminatory tax is irrelevant,” and the statute it enacted does not classify persons or groups based on the relative generosity of their pension benefits but on the source of the pay or compensation.

“If a State exempts only a narrow subset of state retirees, it can comply with § 111 by exempting only the comparable class of federal retirees,” the supreme court said, “however, an implicit but lawful distinction cannot save an express and unlawful one.”